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Cosco - Case Study Example

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Costco Canada: Case Study By Course Institution Date Economic Perspective Costco is a retail business in which retail goods are offered on a discount warehouse membership basis. Costco’s largest and long-running competitor is Sam’s Club, a similar business model owned and operated by Wal-Mart…
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Download file to see previous pages... al., 2008, p. C-3). While this business model has been entirely successful thus far, the provision of limited choices can be problematic in the long-term. With globalization consumers are increasingly confronted with a variety of choices. Therefore shopping in an environment with limited choices may go against what modern consumers have come to expect and prefer. Costco’s business model has nevertheless been successful so far. For example in 2006, total sales in Costco’s 496 stores worldwide amounted to US$ 59 billion. Membership included 26 million private members and 5.2 million business members which amounted to US$1.2 billion in fees for Costco membership. Each of Costco’s stores realize sales each year at an average of US$128 million while its closest competitor Sam’s Club realizes only US$67 million annually (Thompson, et. al., 2008). However, since Costco and Sam’s Club are based on the same business model, the disparity in sales might be a matter of concern. Costco can expect that at some stage Sam’s Club will attempt to take some of Costco’s market shares and the sales’ positions can be reversed. ...
For example, operating costs increased progressively from US$1,037 million in 2000 to US$1,626 in 2006. However, net sales and membership fees together increased from US$32,164 million in 2000 to US$60,151 million in 2006 showing progressive increases from year to year. At the end of 2000, Costco had 313 stores operating worldwide and by the end of 2006, Costco had 458 stores. Membership has also followed a similar pattern, increasing each year from 2000-2006 (Thompson, et. al., 2008). Although membership is a big part of the business model it is a more significant marketing strategy and will be critiqued in the next section. The successful business model of offering quality goods at low prices is enabled by the warehouse membership set-up. By taking this approach, Costco is able to save the cost involved in in-store decorum and in-store customer service. In fact, Costco’s various warehouses typically display bare cement floors and shopping is designed like a “treasure hunt” experience (Thompson, et. al., 2008, p. C-6). Moreover, Costco offers limited products in volumes to lower the cost of inventory and floor management. For example, a typical supermarket or supercenter such as Wal-Mart or SuperTarget will offer between 40, 000 and 150,000 items while Costco offers only 4,000 items (Thompson, et. al., 2008). Thus far, Costco’s business model has been successful, however increasing competition indicates that Costco might have to consider revamping its business model. For instance, Costco’s largest business rival, Sam’s Club and BJ’s both use a similar business model. Both Sam’s Club and BJ’s have similar in-store lay-outs, offer about 4,000 items and feature the treasure hunt experience in which luxury goods are available at lower ...Download file to see next pagesRead More
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